Asset protection is an important aspect of Florida estate planning and is a sensitive process for Floridians. In some states like Nevada and Alaska, they allow what is known as a Home Asset Protection Trust which protects the trust against creditors. There are approximately 13 other states that allow a home asset protection trust. Florida is not one of them. In fact, public policy in Florida shudders at the idea of ​​Home Asset Protection Trust instruments being created to avoid paying creditors or estate taxes. A Florida estate planning attorney can set up a spendthrift trust for asset protection, but must ensure that the instrument is not set up as a self-settled trust, otherwise the trust is not protected from creditors.

What makes a home asset protection trust different from a spendthrift trust in Florida? To answer that question, you’ll need to understand what differentiates the two instruments. First, think of the trust as similar to an offshore account. This particular trust can be useful for people in high-risk industries or people trying to avoid taxes on their estate. A home asset protection trust is a self-established trust that is allowed in Nevada, Alaska, and 13 other states. In other words, the Settlor creates the trust for the benefit of the Settlor during her lifetime.

If you’re thinking about creating a home asset protection trust as a Florida resident, think again. For any chance of this type of trust to be relevant, most, if not all, of the activities must be in the state that allows the instrument, such as Nevada or Alaska. Even though the activity may be in the allowed state, it could still lead to disaster in the future. See Waldron v. Huber (In re Huber), 2013 WL 2154218 (Bk.WDWa., Slip Copy, May 17, 2013). In this case, a Washington resident with no connections to Alaska had an estate planning attorney set up an Alaska household asset protection trust that failed miserably. Therefore, a Florida resident is highly unlikely to benefit from this type of trust created in Nevada or Alaska and should be avoided at all costs unless Florida trust law changes. Does this mean that the Home Asset Protection Trust will not be allowed in the future? Only time will tell.

Will the Florida Spendthrift Trust function similarly to the Nevada and Alaska Household Asset Protection Trust? It depends on how the Florida estate planning attorney prepares the wasteful trust. If the Spendthrift Trust is created as a self-settled trust, then the answer is “no”. This includes creditor attacks on self-established revocable living trusts and self-established irrevocable living trusts as well. As a result, a so-called self-settled trust, which is a trust established for one’s own benefit, does not provide asset protection against creditors under current Florida trust statutes.

In 2006, the Florida legislature enacted the new Florida Trust Code which became effective July 1, 2007. Whenever a trust agreement includes a “wasteful provision,” Florida courts have consistently held that the interest of A beneficiary in a trust established for his or her benefit is protected by someone else. The waste provision generally states that a beneficiary may not assign or transfer his or her beneficial interest. The most common intent of a wasteful provision is to prevent a beneficiary from squandering her inheritance. As a result, the beneficiary’s creditors cannot force the assignment to pay the beneficiary’s debts because the trustee prohibits the beneficiary from assigning his beneficial interest.

For asset protection against creditors to be effective in a spendthrift trust, the instrument must be prepared with an asset protection provision in which the trust is established by a trustee other than the beneficiary. A qualified and experienced Florida estate planning attorney would create a wasteful, non-self-settled trust if the intent of the instrument is to protect assets against creditors.

Finally, for effective Florida estate planning using section 736.0502, Florida Statutes (2013), an attorney must ensure that the waste provision expressly restricts voluntary and involuntary transfers of trust interest from a beneficiary. If the wasteful provision does not specifically express this language, the provision will not meet legal requirements. Once the beneficiary receives the distribution from the trustee, the money held by the beneficiary is no longer protected from the beneficiary’s creditors.

FULL DISCLOSURE

This article only reflects my individual personal views. It does not necessarily represent the views of my law firm or my previous clients, and is not sponsored or endorsed by them. The case-specific information contained in this article is based on opinion only and is provided for educational purposes only and is not intended to provide specific legal advice. No representation is made about the accuracy of the information published in this article. Article topics may or may not be up to date and entries may be out of date by the time you view them.